Many operators are attempting to position themselves with enterprises as the suppliers of choice for cloud computing. Moving away from the traditional voice and data market and competing against specialist providers of cloud computing will be a difficult sell for operators, but if they leverage their many strengths, they may have the opportunity to successfully move up the value chain.
Since the emergence of application service providers (ASP) ten years ago, managed services, network-based services, software as a service and infrastructure as a service have all added to customers’ confusion – for simplicity, we can refer to all of these terms as ‘cloud computing services’. What these services have in common is that they have become the responsibility of the provider, rather than the customer. For example, the software no longer resides on the customer’s PC or server and instead resides in the provider’s network, and in services involving ‘infrastructure as a service’ the server may reside in the provider’s data centre.
The term ‘cloud computing’ has seen increasing exposure in the past 12 months as a result of enterprises seeking to optimise capex, reduce risk of investment in infrastructure and avoid software licences that may not be always fully utilised, due to the economic downturn. At the same time, due to declining margins per minute and per bit for voice and data traffic reaching a tipping point, operators have been forced to re-evaluate their position in, and consider moving up, the value chain. Concentrating on the infrastructure element of cloud computing services will not deliver the long-term margin opportunity operators are seeking – shrinking margins and revenues from web hosting is testament to this – therefore what operators should look to provide is a broad range of cloud computing services.
In the past 12 to 18 months a large number of operators and their ICT arms, such as AT&T, Fujitsu, Orange Business Services, T-Systems and Verizon Business, have launched a whole range of cloud computing services. Entering a market already served by companies like Amazon, Gogrid, Google, Flexiscale, salesforce.com and many others is not going to be easy. It is a new domain for operators and requires a different sales skill set compared to voice and data, which is also the case for above and below the line marketing, which has already been mastered by the likes of salesforce.com.
Operators, however, have a significant advantage over non-telco cloud computing providers as they own networks and have the opportunity to bundle multiple cloud computing services with fixed lines and data networking services (and take advantage of their ‘stickiness’). They are also in a unique position to cross-sell cloud computing services to existing customers, and partner with multiple software vendors, acting as an aggregator to deliver a broad portfolio of services to enterprises (akin to the mobile application stores, but with recurring revenues). They are also equipped with the ability to manage points of failure in their networks, deliver resilience and manage service and network SLAs, elements that non-telco companies do not always have direct control over.
In selling cloud computing services to enterprises, operators should focus on customers’ perceptions when competing against non-telco counterparts, and take into consideration questions such as, “Will the supplier be able to scale to meet demand?” “What is the longevity of the supplier?” “What other services can the supplier deliver?” “Can total cost of ownership (TCO) be reduced by working with this supplier?” “Will the supplier be able to deliver on requirements in the future?”
Operators should become the cloud computing aggregators of choice, given that they have the ability to partner with a wide range of software vendors and offer a wide portfolio of services to enterprises, in comparison to many non-telco providers that may only be able to deliver a select number of services that may be vertically or horizontally focused. Nevertheless, to sell to enterprises, all cloud computing service providers need to understand how they can minimise customers’ TCO, minimise supplier management, deliver on all SLAs and provide a portfolio of services that evolves to meet future requirements.
Analysys Mason has experience in developing enterprise propositions on the sell side, as well as in assisting organisations to select propositions on the buy side, in all cases supporting clients to realise the true value of their propositions.
For more information, please contact Gareth Williams, Senior Analyst at gareth.williams@analysysmason.com.